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On December 10, 2014, the Department of Energy’s Loan Program Office (“DOE”) announced the Advanced Nuclear Energy Projects Solicitation (“Solicitation”) for its up to $12.5 billion loan guarantee program under Section 1703 of Title XVII of the Energy Policy Act of 2005. The program provides long-term financing for innovative broadly-defined advanced nuclear projects that reduce greenhouse gas (“GHG”) emissions and are located in the United States.

Under this Solicitation, DOE is seeking to support innovative advanced nuclear energy projects that meet the following eligibility criteria:

be located in the United States;

be an advanced nuclear energy facility, which includes the use of the following technologies:

nuclear fuel cycle “front-end” technologies:

uranium conversion;

uranium enrichment; and

nuclear fuel fabrication;

nuclear power facilities:

advanced nuclear reactors;

small modular reactors; and

uprates and upgrades at existing facilities;

avoid, reduce, or sequester anthropogenic emission of GHG;

employ New or Significantly Improved Technologies, as compared to Commercial Technology in service in the United States, at the time the term sheet is issued, as these terms are defined under 10 CFR Part 609;

provide a reasonable prospect of repayment of the principal and interest on the guaranteed obligation and other project debt;

have sufficient funds to carry out the project; and

not benefit from certain other federal assistance, as described more fully herein.

A technology will be considered Commercial Technology if it is in “general use” in the commercial marketplace in the U.S. at the time the term sheet is issued by the DOE. A technology will be considered in “general use” if it has been installed and is used in 3 or more commercial projects in the U.S. in the same general application as in the proposed project, and has been in operation in each such commercial project for at least 5 years by the time the term sheet is issued. (Such projects operating in foreign countries do not count against this cap.)

A New or Significantly Improved Technology is a technology that is not a Commercial Technology, and that has been: (i) only recently developed, discovered, or learned; or (ii) involves or constitutes meaningful and important improvements to the Commercial Technology in use in the U.S. at the time the term sheet is issued.

Technologies

This Solicitation is intended to solicit applications in the following advanced nuclear energy technology areas: “Front-End” Nuclear Fuel Cycle Facilities

Uranium conversion

Projects that economically convert U3O8 powder into a gaseous form of uranium hexafluoride with reduced GHG.

Uranium enrichment

Projects or facilities that transform natural uranium or uranium tails to a higher isotopic content of U235 by:

Gas centrifuge; or

Laser isotope separation.

Nuclear fuel fabrication

Projects that fabricate nuclear fuel, such as:

Production of UO2 powder that is “reconverted” from enriched UF6 gas from enrichment plants;

Formation of UO2 pellets from UO2 powder through compaction and sintering; and

Fuel assembly (i.e. insertion of pellets into zircaloy tubes and formation of a fuel assembly using fasteners).

Projects with state-of-the-art design improvements in the areas of fuel technology, thermal efficiency, modularized construction, safety systems (especially the use of passive rather than active systems), and standardized design and are nominally 300 MWe or smaller in size.

Uprates

Projects consisting of improvements and/or modifications to an existing reactor that is operating but that, due to such improvements and/or modifications, will operate more efficiently.

Upgrades

Projects consisting of improvements and/or modifications to an existing reactor that is:

Not operating and cannot operate without such improvements and/or modifications; or

Operating but would be required to cease operating unless such improvements and/or modifications are made.

Of the total $12.5 billion (reducing available funds by $100,000,000 since the Draft Solicitation of $12.6 billion) in funds available under this Solicitation, $2 billion will be made available exclusively for advanced nuclear facilities for the “front-end” of the nuclear fuel cycle and $10.5 billion will be made available for nuclear power facilities. Nuclear power facilities eligible for funding under this Solicitation include nuclear power projects and the associated nuclear reactor designs that are currently under review by the Nuclear Regulatory Commission (“NRC”), including nuclear power projects and associated nuclear reactor designs that are under the NRC pre- application phase for certification, construction permit, or combined construction and operating license review.

To foster further development of advanced nuclear energy technology, DOE will view favorably projects that demonstrate their catalytic effect on the commercial deployment of future advanced nuclear energy projects that replicate or extend the innovating features of such eligible project.

The Solicitation identifies the following two types of projects that DOE has determined will have a catalytic effect:

techniques and processes, or fabricate nuclear fuel for advanced nuclear power facilities. However, these types of projects or facilities are not intended to be limiting or exclusive.

DOE does not prescribe any NRC licensing requirements as preconditions for project eligibility. However, any required NRC licenses will be addressed by conditions precedent in the project’s loan guarantee agreement. Prior to execution by DOE of a loan guarantee agreement, the applicant must filed for, or have obtained, any required regulatory approvals for the project.

The program is not subject to any statutory or regulatory dollar limit for any single project. However, DOE views favorably the use of partial guarantees, co-lending arrangements, and projects that could be fully financed on a long-term basis by commercial banks, internally generated corporate funds, or other commercial means without a federal loan guarantee. Loan guarantees can support debt from either a commercial or other qualified lender or the Federal Finance Bank at the U.S. Department of Treasury, where lenders will not finance such projects without a credit enhancement such as a federal government loan guarantee.

Credit-Based Interest Rate Spread

On July 9, 2014, DOE announced that a credit-based interest rate spread will be added to certain loans under Title XVII of the Energy Policy Act of 2005 (“Title XVII”). The Solicitation was authorized by Title XVII and, therefore, the credit-based interest rate spread will apply to clean energy projects, along with all other applications made under Section 1703 of Title XVII.

Loans that are issued by the Federal Financing Bank (“FFB”) and backed by a 100% DOE loan guarantee will be subject to a new credit-based interest rate spread, as follows:

Project Credit Rating

Credit-Based Interest Rate Spread (%)

Final FFB Interest Rate Spread (%)

AAA

0.000

0.375

AAA-

0.000

0.375

AA+

0.000

0.375

AA

0.000

0.375

AA-

0.035

0.410

A+

0.075

0.450

A

0.115

0.490

A-

0.185

0.560

BBB+

0.265

0.640

BBB

0.335

0.710

BBB-

0.525

0.900

BB+

0.725

1.100

BB

0.925

1.300

BB-

1.125

1.500

B+

1.295

1.670

B

1.475

1.850

B-

1.625

2.000

The tenor of a FFB loan and term of a DOE loan guarantee may be up to 30 years, but typically range between 12 and 20 years. The tenor is a key factor in the calculation of the interest rate applicable to the FFB loan. Interest rates charged to loans issued by the FFB will be computed as follows:

Under the regulations (42 U.S. Code 16512 (c)), DOE may provide a loan guarantee of up to 80% of the total project costs, without a cap, but subject to available program funds.

In practice, however, most projects receive loan guarantees at a maximum of 65% or a lesser percentage of the total project costs. In fact, historically, DOE has not guaranteed more than 70% of the total project costs.

Notwithstanding the level of a DOE loan guarantee, the remaining balance of project costs must be funded by equity (including tax equity, such as Investment Tax Credits and New Market Tax Credits), state grants, subordinated debt, and other financing mechanisms.

Other Federal Assistance

Projects that benefit directly or indirectly from other forms of federal support, such as grants or other loan guarantees from federal agencies or entities, federal contracts, acquisitions, leases, and other arrangements may not be able to receive funds under this Solicitation pursuant to the 2009 Appropriations Act, subject to limited exceptions.

Credit Subsidy Costs

DOE has no available funds to cover the credit subsidy costs associated with this Solicitation. Like in the Advanced Fossil Energy Loan Guarantee Program (see our Client Alert, dated December 12, 2013, at http://bit.ly/1sD6hi8), the applicant will be expected to bear the full credit subsidy costs, which cannot be covered under this program’s loan guarantee or any other federal government funds. (Only the Renewable Energy and Energy Efficiency Projects Solicitation provides partial credit subsidy funding. See our Client Alert, dated July 10, 2014, at http://bit.ly/1qs1jU2). As such, the applicant must commit additional funds above and beyond the equity already committed to the project.

Credit subsidy costs are non-refundable and due and payable at financial closing.

Fees

Each applicant must pay non-refundable application fees, facility fees, and maintenance fees, as summarized below. These fees must be borne by the applicant and cannot be covered under this program’s loan guarantee or any other federal government funds.

Application Fee

The total application fee for the application is targeted at between $150,000 and $400,000, payable in two installments, as follows:

Payable upon submission of:

For senior debt at or less than

$150 million

For senior debt exceeding $150 million

Part I of the application

$50,000

$50,000

Part II of the application

$100,000

$350,000

Facility Fee

The facility fee ranges from 1% to 1.6% of senior debt, depending on the amount of senior debt:

For senior debt at or less than $150 million

For senior debt exceeding $150 million

1%

1% for the first $150 million plus

0.60% for any amount exceeding $150 million

The facility fee is payable in two installments: 25% upon the applicant’s execution of a DOE-approved term sheet, and 75% upon financial closing.

Maintenance Fee

The maintenance fee covers DOE’s administrative expenses in servicing and monitoring the loan guarantee, starting with the borrower’s execution of the loan guarantee agreement and through payment in full. It is expected to be up to $500,000 per calendar year, based upon the requirements of a specific project. The maintenance fee is payable annually in advance.

Application Process

The application consists of two submissions, Part I and Part II. Part I submission determines the initial eligibility of a project for funding, while the Part II submission includes completion of the full application and due diligence process. Only applicants for projects that are deemed eligible based on DOE’s Part I review may be invited to submit Part II of the application.

Part I review will include an evaluation of whether the project is responsive to the requirements of the Solicitation.

Part II review will include a determination of the project’s viability based on financial, technical, and programmatic factors. DOE will conduct a more detailed, weighted review of a Part II application, which will include thorough due diligence of the project.

Viable projects that are granted a conditional commitment will then undergo the complete underwriting process and negotiation of terms for the loan guarantee.

The Solicitation instead provides 3 rounds of funding. (In contrast, the Advanced Fossil Energy Projects Solicitation provides 6 rounds and the Renewable Energy and Energy Efficiency Projects Solicitation provides 5 rounds. All Program Solicitations have 2 Parts in each round.) The first deadline for filing Part I of the application is March 18, 2015, and the first deadline for filing Part II of the application is October 14, 2015. Following these initial deadlines, there are rolling Part I and Part II deadlines as set forth below. DOE may announce additional rounds in a supplement to this Solicitation.